Old National Books a Record Quarter in a Market That Now Expects a Hiking Cycle

Record EPS, a 44.9% efficiency ratio and 19.6% ROTCE — and a stock that is flat since June, nine-month-high drawdown included — as the rate regime flips, mortgage slides out of the story, and the buyback becomes the growth engine.

ONB · Earnings Call · 2026-10-21

A record quarter the tape won't pay for

By the numbers management chose to lead with, Old National's third quarter was the best in its history: EPS of $0.66, record net income, a record-low 44.9% adjusted efficiency ratio, 1.37% return on assets and 19.6% return on tangible common equity. “These results reflect the strength of our franchise and disciplined execution of our strategy” — James C. Ryan, President and Chief Executive Officer · 2026-10-21, Jim Ryan said — and the numbers back him up. The cost machine is not new: the efficiency ratio has compressed from a 71.6% peak in 2015 to about 36% today. And yet: the stock is flat. Ninety days, -0.7%, still 9.9% below the July 16 peak of $27.29. At 11.2x trailing net income, 24% below where it traded a year ago, with 1.2x book, near the high end of a decade-long 1.0–1.4x band, the market is pricing peak profitability as a plateau, not a base. That tension is the story of this report.

The regime flipped: cuts became a hiking cycle

Here is what actually changed. For four quarters, this management team framed everything around rate cuts. In April, John Moran said “the material decreases in spot rate are probably behind us if the Fed is done for the year, which is our base case expectation” — John Moran, Chief Financial Officer (CFO) · 2026-04-22. In July he mused about a "normal-looking curve" and a structural margin "plus some." This quarter's global keywords read like a different world: hiking cycle, Fed rate hike, change rate environment — the rate-hike vocabulary is at the top of the market keyword list, and the same language is coming out of this week's bank reporters (KEY, HWC, SMBK, BWB, and asset manager CNS all flagged it). For ONB that cuts two ways. Funding costs are rising again: total and interest-bearing deposit costs each rose 8bp linked quarter — about half from new growth, two to three basis points from seasonal public funds, the rest competitive deposit pricing rather than back-book repricing. The competitive environment is now the binding constraint on the margin. The offset is genuinely company-unique: a granular deposit franchise. “The median balance for our total deposits are $3.8 thousand. If you rip out the CDs, closer to $3 thousand. Like, there is just not a lot to do with sorting” — John Vincent Moran Vincent Moran, Chief Financial Officer · 2026-10-21. Cash sorting is exhausted, so the incremental deposit beta should behave like history — roughly 40% on total deposits — rather than shocking the NIM. And they positioned for it deliberately: “We put on some CDs this quarter. And I think that is gonna look really smart in a quarter or 2 or 3 or 4” — John Vincent Moran Vincent Moran, Chief Financial Officer · 2026-10-21, on the view that the funding curve had run ahead of the Fed. Management also concedes it has "pivoted ever so slightly asset sensitive," making higher-for-longer a modest tailwind. The guidance is small but symbolic:

I think in general for 4Q, we could expect to see NII dollars continue to move up... probably has a 6 in front for 4Q, and then a margin that will expand a couple of basis points from here.
John Vincent Moran Vincent Moran, Chief Financial Officer · 2026-10-21

That is $592 million of NII becoming something starting with a 6, and a 3.52% margin going to roughly 3.54%. Not heroic — but it is the first time in several quarters the direction of the margin question has flipped.

The mortgage line quietly leaves the story

The tell is what stopped being a positive. In January, Moran was “cautiously optimistic on mortgage for twenty six” — Terry McEvoy, Analyst · 2026-01-21; in July the mortgage business was "very solid." This quarter, mortgage fees are the soft spot and the framing has changed: “Mortgage, obviously, a little bit of softness... Jo not think mortgage is gonna be a big grower for us next year” — John Vincent Moran Vincent Moran, Chief Financial Officer · 2026-10-21. Rising rates help NII and hurt mortgage — a rotation the market may be slow to credit while it fixates on the NIM guide. Meanwhile the growth engine narrowed. The loan pipeline is $4.4 billion, up just 6% year-over-year, against the 14%-plus pipeline growth management touted in April. Loans grew 3% annualized; guidance was nudged toward the low end of the 6–8% annual range. NII dollars and earning asset growth now rest on deposit growth continuing — an 11% annualized quarter, $1 billion of it organic, plus roughly $450 million of seasonal public-funds strength management was careful to label as seasonal.

Growth now wears a name badge

The replacement for both mortgage momentum and M&A is people. Old National added 26 relationship managers — 19 commercial, concentrated in new Ohio markets (Cleveland, Columbus) and specialty verticals. new bankers and banker hiring are the freshest, highest-momentum themes in this company's keyword history, and the economics are explicit: “For commercial talent, our earn backs tend to be very quick... inside a year, year and a half” — John Vincent Moran Vincent Moran, Chief Financial Officer · 2026-10-21. This is growth by hiring, not by acquisition — a deliberate substitute for deal-making. On M&A, Ryan closed the door: “I do not think this is the time or place for us to thinking about more m and a” — James C. Ryan, President and Chief Executive Officer · 2026-10-21 — consistent with “the best acquisition we can make is in ourselves” — Jim Ryan, CEO · 2025-10-22 from a year ago. With quarterly repurchases now running above $100 million versus almost nothing two years ago, capital return is the primary incremental use of capital: $177 million left on the authorization, expected to be exhausted by the February expiry, with a regulatory kicker waiting in the wings — “if those changes in Basel III... go in as written I think we get... top of 100 basis points of additional CET1, and that may allow us to reconsider the size of the repurchase authorization” — John Vincent Moran Vincent Moran, Chief Financial Officer · 2026-10-21. So the setup into 2027: a 19.6% ROTCE franchise with a granular deposit base, a marginally improving NIM in a hiking cycle, decelerating loan growth, a fading mortgage tailwind, and an escalating buyback with a Basel option attached. The stock at 11x suggests the market wants proof the record is repeatable. Old National's answer is to buy the proof back itself — four basis points at a time.